Porters 5 Force Analysis

PorterвЂ™s 5 force model is framework for industry analysis that determines the competitive power and appeal of a market. These вЂ?5 forcesвЂ™ show a companyвЂ™s ability to serve its clients and make a profit.

The model is particularly useful for those who are looking to enter into the market as the model creates a clear picture of the industry.

PorterвЂ™s 5 key forces for the automatic vending industry are:

1. The threat of potential entrants

2. The bargaining power of suppliers

3. The bargaining power of buyers

4. The threat of substitutes

5. Competitive rivalry amongst existing firms

The threat of potential entrants вЂ“ Low

The threat of potential new entrants for the vending industry is considerably low as there are many barriers to overcome.

Barriers to entry can be viewed as follows:

Access to distribution channels

The vending industry depends heavily upon a variety of products from different manufacturers. As the industry serves all kinds of public and private locations (under highly governed regulations and policies, it requires strong access to distribution channels in order to maintain a competitive edge. This in itself represents a threat for any new entrants.

Cost and price disadvantage

There is no clear cost and price advantage for any organisation in the vending industry. Vending organisations generally sell retail commodities through their machines, which are entirely control by their suppliers. There are few external factors like vulnerable inflation and food pricing and increasing employee wages.

Switching to substitute costs

Unfortunately there are several substitutes available in market and they represent a huge threat for possible new entrants. Substitutes are highly focused, selling all the possible varieties of products with clear cost advantage.

Government actions

Heavily governed regulations and policies offer another threat for the potential new vending entrants. The Smoking ban and restriction of use of tobacco in public places. Standardisation applied by the EU regulatory over the sale of junk food, especially in educational establishment.

The bargaining power of suppliers - LOW

The bargaining power of suppliers for the vending industry is generally considered to be low for several possible reasons.

Supply industry is more distributed

As vending operators are now able to offer a range of products, they face challenges from a supply and distribution viewpoint. They need to ensure that they can re-stock their products on time and with minimal cost throughout their location network.

Low switching costs for buyers

Vending machines have their own disadvantages for example it is not possible to sell every consumer product. Issues exist such as space restrictions; the machines require electricity (and technology). Availability of substitutes and their operating patterns of 24/7 at a wide range of locations are a threat for the industry.

Powerful suppliers

As the vending industry mainly sells retail commodities, it means the bargaining powers of suppliers are high. Few vending operators sell their own products through vending machines. In this case coffee ingredient producers and machine manufacturers are considered to be more powerful.